FDI and Local Economic Development: The Case of Taiwanese Investment in Kunshan

The extent to which foreign direct investment (FDI) can foster the long-term economic development of lagging regions remains a highly debated issue in the literature, even in the current era of intense territorial competition for mobile investment and resources. The emergence of new industrial spaces in China that have flourished through FDI offers a good opportunity to revisit the topic. Kunshan in Suzhou, China has evolved from an impoverished area into a world-class information technology (IT) centre within 25 years. FDI, mainly from Taiwan, has enabled Kunshan to gradually upgrade its economy, following a development path that has been largely based on the transplant of entire production chains from Taiwan. Local innovative strategies for attracting and increasing the embeddedness of Taiwanese FDI are also an important element of Kunshan's success. This paper discusses the positive aspects, as well as the potential costs and negative facets, of FDI in Kunshan, with the view to draw some policy lessons regarding the impact of FDI on the economic development of lagging regions.